Brolly good idea

Chinese urban outdoor brand Beneunder has filed for an initial public offering in Hong Kong.

The Shenzhen-based firm is seeking to raise up to US$500 million (HK$3.9 billion) in the share sale, according to media reports.

Founded in 2013, the company started its business by producing double-layered umbrellas, and now offers a wide range of outdoor wear and accessories including hats and footwear, according to its regulatory filing.

Beneunder was the largest sun protection apparel brand in China in terms of both total retail sales and online retail sales in 2021, with market shares of 5 percent and 12.9 percent, respectively, according to a commissioned report from China Insights Consultancy.

Its online retail sales of sun protection apparel in 2021 was five times more than that of the second-largest brand, according to the CIC report.

Beneunder recorded revenue of 2.41 billion yuan (HK$2.97 billion) last year over revenues of 794 million yuan in 2020 and 384.8 million yuan in 2019, representing a compound annual growth rate of 150 percent.

Revenue from non-sun protection products increased five-fold to 495.7 million yuan in 2021, with the contribution to total revenue increasing from 0.7 percent in 2019 to 20.6 percent in 2021.

Beneunder's umbrellas, at 200 yuan, are about four times costlier than ones from competing brand Paradise Umbrella.

However, amid uncertainties over the costs of outsourced manufacturing and surging advertising expenses, the company's net loss rose from 23.2 million yuan in 2019 to 5.5 billion yuan in 2021.

From 2019 to 2021, distribution and selling expenses rose from 124.6 million yuan to 1.1 billion yuan, representing 32.4 percent and 45.9 percent of total revenue.

Beneunder has enlisted popular actress Zhao Lusi as the brand's ambassador and promotes itself on social media platforms such as Xiaohongshu, Douyin and Weibo. Last year, over 600 influencers collaborated with the firm and generated 4.5 billion views, significantly enhancing the recognition of the brand.

But Beneunder's links with influencers have drawn criticism from the People's Daily, which has accused the retailer of wasting revenue on advertising and paying large sums to famous influencers, saying its marketing costs have increased by more than 10 times over the past three years.

Beneunder also reaches massive consumer groups through e-commerce platforms such as Tmall and JD.com and fast-growing live-streaming platforms such as Douyin, the sister app of TikTok.

Nevertheless, the over-reliance on online platforms poses a significant risk to the company as any negative reports on these platforms will discourage consumers from visiting them, resulting in reduced traffic to online stores or sales of the products.

With this in mind, Beneunder has expanded the number of retail stores from 39 in 2019 to 66 in 2021, mostly in first- and second-tier cities.

Like many new consumer brands, Beneunder is big on marketing but falls short in research and development. Between 2019 to 2021, the share of research and development expenses in proportion to total revenue decreased from 5.2 percent to 3 percent. And even though it has a total of 123 patents, most are focused on design rather than technology.

Beneunder's major shareholder is Sequoia Capital, which holds a 19.4 percent stake. It plans to use the IPO proceeds to bolster its research and development, enhance brand awareness and identity, strengthen its omni-channel sales and distribution network, increase market penetration and share, improve the supply chain management, fund the digitalization of operations and foster business through alliances, acquisitions and investments.